George S. May Business Blog

Housing starts up for February – Are we near a bottom?

Here is a bit unexpected good news:

Breaking the longest downturn in 18 years, US housing starts turned up this past month.

From Bloomberg:

“Work began on 583,000 homes at an annual rate, a 22 percent increase from January that was propelled by a surge in condominiums, apartments and townhouses, Commerce Department figures in Washington showed today. A separate report showed gains in producer prices slowed, underscoring a lack of inflationary pressures with the economy in a recession. ”

Could this be a sign that we are finally getting to bottom? Senior economist at Wells Fargo in Minneapolis, Scott Anderson, warns not to take the champagne off ice just yet:

“It’s a bit too early to get too excited, but we are nearing the bottom in housing”.

Part of the reason for his expressed skepticism is probably, in part, due to the underlying fact that building permits rose less than starts, generally an indication that construction will slow down. Many economists project that until the Obama administration is able to untangle the credit crisis, developers will continue to see a fall in prices and, in turn, profits.

Now, although permits did not increase as much as construction starts, it should be noted that they did still see a rise:

Permits increased 3 percent to a 547,000 annual pace. They were forecast to drop to a 500,000 annual rate, according to the survey median.

Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts, said in an interview with Bloomberg Television that although “we’re not quite there yet”, in looking over the data, it seems that the US economy is “beginning to get to a bottom”.

In related news, Fed Chairman Ben S. Bernanke said last week that the central bank is “not anticipating deflation,” or a prolonged drop in prices that hurts profits and makes it difficult to repay loans.

“We are committed to price stability, we believe we have the tools in place to do that,” Bernanke said March 10 in response to a question after a speech to the Council on Foreign Relations in Washington. “Right now both the objectives for price stability and the objectives for growth are pointing in the same direction and that is for strong support of the economy.”

Bernanke and company are still investigating the possibility of expanding existing asset-purchase or even initiating fresh measures, such as buying Treasuries.

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